Congressional Republicans are struggling to devise a strategy to resist the liberals’ headlong rush to spend another $1 trillion on an economic stimulus package. Though Speaker Nancy Pelosi (D-Calif.) said the stimuli should be “timely, temporary and targeted,” neither she nor President-elect Obama can say what the target should be. And the ideas they’re floating threaten long-term damage to the economy they’re aiming to fix.
In a closed-door meeting of Republican senators last Wednesday, one senator suggested that they play like Los Angeles Lakers great Kobe Bryant. He described how Bryant — known for explosive action and Michael Jordan-like shooting skills — “let the game come to him.”
Letting the game come to them means Republicans want to choose to fight only the most important issues. The risk in that approach is that too much will happen too fast for them to have an effect.
In that same meeting, the Republicans heard from three prominent Republican economists: Martin Feldstein, who was chairman of the council of economic advisors to President Reagan, Larry Lindsey, who was President George W. Bush’s first chairman, and the co-director of the American Enterprise Institute’s Financial Deregulation Project Peter Wallison.
All three agreed that some economic stimulus was necessary. Feldstein, according to one senator who attended the meeting, said that the only sure way for government spending to stimulate the economy was to increase defense-related manufacturing. Feldstein said it would produce jobs, produce them quickly, and also be used in a way that’s needed. But we’re not going to be building needed air refueling tankers, fighters and tanks with Pelosi and Reid in the way.
Which brings us to the stimu-lies the Democrats argue to support their radical spending package.
Republicans need to take on the Democrats immediately because, as a January 6, 2009 Congressional Research Service report said, the current budget deficit — already over $1 trillion — may render more deficit spending a burden on the economy rather than a stimulus. The Democrats’ stimu-lies are dangerous to the economy.
The report said, “A main factor in another round of fiscal stimulus may be the size of the current budget deficit. Stimulus proposals for 2009 are relatively large, and some observers believe the deficit will already exceed $1 trillion in 2009. Deficits of this magnitude could set a peacetime record relative to GDP. Although current government borrowing rates are extremely low (because of the financial turmoil), there is a fear that a deficit of this size could become burdensome to service when interest rates return to normal. A larger deficit could eventually crowd out private investment, act as a drag on economic growth, and increase reliance on foreign borrowing (which would result in a larger trade deficit). By doing so, the deficit places a burden on future generations, and could further complicate the task of coping with long-term budgetary pressures caused by the aging of the population.”
The common wisdom among Democrats is that a new New Deal — spending on “shovel-ready” construction for the repair of roads and bridges and such — is the fastest route to economic recovery. Two huge problems impair that logic. First, “shovel-ready” and "infrastructure” are Democratic code words for pork-barrel spending. The Las Vegas proposal to build a museum on mafia history is a prime example. On ABC yesterday, Obama couldn’t bring himself to say the mob museum was a bad idea.
Second, construction projects don’t necessarily result in rapid job creation. There is a lag time in months or even years between the passage of legislation and bureaucratic action to spend the money authorized. We saw this in the failed financial bailout last fall. The Treasury Department, given a checking account with $350 billion in it, took weeks and months to dispense the funds, and even after the time passed, the anticipated loosening of the credit market didn’t happen. Any stimulus from this sort of pork-barreling won’t take effect for months or years and — like the financial industry bailout and the automakers’ bailout — may have no positive effect.
Worse still, the Democrats are proposing increases in entitlement spending, such as raising Social Security benefits.
Senate Minority Leader Mitch McConnell (R-Ky.) told me, “Making — adding more benefits to the current entitlement system, which is already unsustainable, is neither timely, temporary, nor targeted. So, I think, principle number one: let’s don’t make any permanent changes in entitlements that exacerbate a problem that is already enormous even before you count in this year’s deficit. Number two, I recommended — just like we did in the financial rescue package — rather than just giving money to the states, that we loan it to them.”
McConnell’s idea of a loan would help ensure against the burden on future generations the CRS warned against.
Congressional Republicans think the incoming Obama administration wants to avoid the problems that beset Bill Clinton after his quick push for hardcore liberal agenda items in his first year. The Obama camp is studying Clinton’s moves — such as his first days action to enable gays to serve openly in the military — and the losses Democrats suffered as a result in the first mid-term elections of the Clinton era.
But Republicans shouldn’t discount the enormous anger that is propelling Congressional Dems that Obama won’t be able to control. They will force Obama to abandon his proposed tax cuts for businesses and individuals. Yesterday, Pelosi said she wanted to repeal immediately the Bush tax cuts, raising taxes on those whose annual income is more than $250,000 this year. That, and more, will likely trap Obama into Clinton-like mistakes.
The coming battle of the economists will, in the next few weeks, show just how confused they are. But that confusion will not prevent the Democrats from passing legislation that includes every economic stimu-lie that will benefit their constituencies without pushing our economy to recover. And the increased deficit that will result will burden us for generations.
President-elect Obama said he wants to create a “new green economy.” In essence, Obama proposes an economic revolution to remake our economy to suit his ideology. The end of that path isn’t prosperity: it’s the same economic devastation the Europeans have brought upon themselves.
Republicans may think they have to wait and let the game come to them. But they’d better be ready, like Kobe Bryant, to move quickly and shoot surely. The game is coming at them hard and fast, threatening enormous damage to our weak economy.
Cartoon by Brett Noel.